Oil prices tumbled on Wednesday, with U.S. crude falling more than 3 percent, after an unexpectedly large inventory build in the world’s biggest oil consumer renewed worries about oversupply.
The U.S. Energy Information Administration (EIA) reported that crude inventories rose 2.5 million barrels last week, versus analysts’ forecasts for a draw of 500,000 barrels.
Gasoline and distillate stocks also rose, the EIA said, driving down oil prices that had mostly risen in the past two weeks on speculation of an output freeze by major producers led by OPEC.
U.S. West Texas Intermediate (WTI) futures were down $1.60, or 3.3 percent, at $46.50 a barrel by 11:37 a.m. EDT (1537 GMT). Brent crude futures fell $1.13, or 2.3 percent, to $48.83.
“I cannot continue to stress that at this time of year that we are supposed to be getting draws,” said Tariq Zahir, who trades WTI timespreads for Tyche Capital Advisors in New York.
“But instead we’re seeing a build in every single aspect that’s quite eye opening. The Street has gotten it wrong again, with predictions that you’ll start getting rebalancing of supply-demand in the third quarter.”
Oil has swung from bear to bull market territory this month as renewed worries of an oil glut were subdued by speculation OPEC will agree to an output curtailment with non-members led by Russia at a meeting in Algeria next month. A similar idea failed in April and analysts remain skeptical it will work now as some OPEC members keep pumping at high levels even as they tout a freeze.
In Tuesday’s session, crude futures rose on the notion that Iran, which has been steadily adding to crude exports since the end of Western sanctions in January, will support the OPEC plan.
“There is currently a race to print any freeze headlines but we have not yet seen strong substance behind them,” said Olivier Jakob, managing director at PetroMatrix, an energy consultancy in Zug, Switzerland.
That could lead to more market volatility in coming days, some say.
“While we can envision WTI slippage to around the $45 mark next week, we feel that OPEC prattle regarding a possible cohesive effort to restrain production will continue to encourage an influx of speculative capital on price pullbacks of around $2-$3 from yesterday’s settlement,” said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates.
Chinese oil firm CNOOC said on Wednesday the oil price recovery was facing “significant headwinds”, as the state-controlled firm reported a loss in the first half of the year from weak prices.